OVERAGE & OPTION AGREEMENTS
If you’re selling land that you think the buyer might profitably develop for more than was bargained, overage is one way to secure future development value but the devil’s invariably in the detail and some schemes are unenforceable.
Sometimes, sellers add overage more in hope than expectation, which just wastes time and complicates the deal.
Assuming overage is realistic, there are lots of little issues to sort out. For example, when is the clawback actually paid? Is it when planning permission is granted, when the property’s built or when it’s sold? Consider also the prospect of further development after overage has been paid.
We can help you negotiate an overage agreement that’s fair to both parties and reflects the true value of the land. In many cases, the estate agent will duck these issues leaving to your lawyer to explore whether any agreement is possible.
Option & promotion agreements
Option agreements give someone the right to buy your property if they make a decision in a certain timeframe.
Option agreements are often sought by developers over land or can go hand in hand with leases where, if the landlord agrees, tenants can rent business premises with the option to buy the landlord’s interest if they choose. In either scenario, the property is sterilised so far as other interested parties are concerned and options should not be given lightly.
In other deals, potential buyers are given the right of first refusal. For example, a landlord granting a tenant the option to buy before anyone else can be a powerful incentive for tenant to sign the lease, but it can be frustrating for the landlord if the landlord then looking to sell has a tenant who drags his feet and ultimately decides not to buy whilst the truly interested party decides to invest elsewhere.
Then there’s the option price. Will you set it now, or agree an affordable formula for determining it when the time comes? Options might sound simple at first glance, but they can become complicated when you get into the detail.
Promotion agreements are a deeper kettle of fish. Promoters come in all shapes and sizes, some more seasoned than others but involved for a slice of the land’s development value which they are incentivised to maximise, occasionally with an option to purchase at the end if the open market is cool.
Conditional contracts, often not dissimilar in practice to options, are commitments to buy a block of land, but only if a condition precedent such as winning planning permission is obtained. As with options, there’s a lot to sort out. How long will it take to get planning permission and for what? If the permission granted falls short of expectations, does the buyer still have to go ahead?
For help with these and all the other issues around overage and option agreements, just get in touch.
WE CAN HELP YOU NEGOTIATE AN OVERAGE AGREEMENT THAT’S FAIR TO BOTH PARTIES AND REFLECTS THE TRUE VALUE OF THE LAND
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